Hong Kong is heading towards being cashless as paper money and coins account for no more than 1.6% of POS transactions by 2024, the lowest in the Asia-Pacific region, and down from 9% in 2019 and digital payments surge.
The disappearance of cash is in part due to Hong Kong’s burgeoning e-commerce market, which is projected to grow to $29 billion from $21 billion in 2019. The overall POS market in Hong Kong is forecast to increase by almost 27% to $236 billion over the same period.
While the most popular online payment method in 2019 was using a credit card, digital wallets are projected to take the top spot by 2024.
“We are approaching a new frontier of digital commerce, and Hong Kong is leading the charge across the region as they accelerate cashless payments,” says Phil Pomford, Asia-Pacific general manager of Worldpay Merchant Solutions at FIS.
Digital payments are more prevalent than ever in Hong Kong, spurred by the recent HK$36 billion in “consumption vouchers” issued by the government to Hong Kong residents this year to stimulate the economy.
The city was one of the pioneers of cashless payment systems with the launch of the Octopus stored value card in 1997. Initially used for public transport, the Octopus can now be used in a range of retail outlets and has been one of four platforms used for the consumption voucher.
The voucher initiative is designed to boost local spending and accelerate the city’s economic recovery amid the Covid-19 pandemic. Retailers reported sales growth of more than 20% when the first voucher was issued on August 1, with consumers snapping up everything from Rolex watches and electrical gadgets to fast food.
To be sure, Hong Kong has lagged behind the rest of China in its embrace of digital payments. On the Mainland, digital cashless payment is so common that it has prompted the People’s Bank of China to ban businesses from refusing cash payments.
But Hong Kong has proved more resistant. Even as retail has embraced cashless payments, other important parts of the economy – from wet markets to taxis – have resisted.
King Au, Executive Director of the Financial Services Development Council (FSDC), has noted how digital currency and other innovations in financial technology have changed and are continuing to change today’s business models. The city’s move towards a cashless society is driven by both the private sector and government, with a common QR code specification developed for retail payments in Hong Kong.
The FSDC has closely followed the rise of digital payments. One crucial development was the HKMA’s Faster Payment System (FPS), which makes payments simpler and quicker. The system, operated by Hong Kong Interbank Clearing Limited, allows instant money transfers and bill payments via mobile phones, regardless of the bank or e-wallet that is being used.
According to KPMG, Hong Kong’s digital banking landscape could follow a similar path to other jurisdictions like the UK, where virtual banks have been steadily building their customer base over time.
Furthermore, the Hong Kong Monetary Authority’s initiatives to usher in a new era of “smart banking”, coupled with the opportunity to enhance customer experience in the sector, is creating an environment for digital banking to thrive in Hong Kong.
One of the biggest obstacles to a fully cashless payment ecosystem is privacy concerns. Not only can the currency’s issuer and controller track usage, but potentially disconnect a digital wallet if breaches are suspected or detected. This will no doubt meet strong resistance from savers, and to some extent this may also explain why Hong Kong so far has been reluctant to go fully cashless.
So how can the SAR government encourage its take-up? One way to push the adoption would be to remove high-value bank notes from circulation. In 2016, the Indian government announced that all 500 and 1,000 rupee banknotes were no longer legal tender. Amid the chaos of a cash shortage created by demonetisation, cashless payments surged.
Cashless payments have wider benefits, notes Maaike Steinebach, General Manager, Hong Kong and Macau, at Visa. “Cash dominates and is still Visa’s number one competitor,” she acknowledged.
“But sentiment is shifting to the benefits of the city. We believe that by adopting more digital payments, Hong Kong consumers, businesses and governments will benefit from greater economic growth, more jobs, higher wages, increased worker productivity, and even lower crime.”